Join us in this episode of Property Investory to hear how Barlow’s time spent in London after graduating from University was not all play and no work! You’ll learn how he managed to salvage the purchase of a 50 lot subdivision after a dip in the market, how he realised the importance of money during his first property investment and much, much more!

Timestamps:
3.16 | Picking the right area to buy in
6.20 | How you can save money as a buyer
9.32 | Work hard, play hard
12.37 | Greenfield versus brownfield
15.27 | Understanding every aspect of the business
19.24 | Purchasing his first property from Stockland
23.20 | It’s different when it’s your own money
27.30 | The unpredictability of the market
30.29 | How networking pays off

Resources and Links:

(22:40): All of a sudden it's your money and that bill you've got to pay, you might actually ask the consultant to go a little bit cheaper and you might push a little bit harder for certain things to happen quicker. So that was an interesting insight for me in understanding how I would treat my own money versus how I thought I was treating the businesses money that I worked for [essentially].

This is Property Investory where we talk to successful property investors to find out more about their stories, mindset and strategies.

I’m Tyrone Shum and in this episode, we’re speaking with the general manager of Clearstate, Steve Barlow. He shares how he always envisioned working in property and reveals the perks of working in a land subdivision business and how this aids him in his property journey and much, much more!

Tyrone Shum:  

Operating primarily in Sydney, the business that Barlow manages specialises in developing fragmented parcels. You might be wondering what that is? I’ll leave that for him to explain.

Steve Barlow:  

(00:37): It's a consequence of the way Sydney has been developed over time, particularly subdivisions that occurred in the 50s and 60s. It means there are a lot of three–five acre parcels that exist. They are in the growth centre, but they're not big enough for a big MasterPlan community. 

(00:58): They're sort of 50 lots in size, like bite sized chunks. So we specialise in buying those five acre parcels from the existing owner and developing those into communities. What's good about that, from an investment perspective, is that they're small enough such that it doesn't take a significant amount of capital to buy them. If you can aggregate the adjoining parcels, then you can turn it into a particularly big project.

(01:23): Yeah, [like a] big development site, fantastic. There's plenty of opportunity there because we have a lot of land. I guess it's just a matter of being able to release that supply to the market, isn't it? 

(01:39): Well, one of the other good things about fragmented subdivision is that the bigger parcels are typically further away from the infrastructure. A good example of that is [in the case of] some projects we've got in Rouse Hill, where the government invested heavily in the new metro line that will ultimately run through into the city. It's a great piece of infrastructure and we've been able to get projects within walking distance of that metro station. 

(02:07): A customer can come in and buy a freestanding house, but be within walking distance of this great piece of infrastructure. Typically, the bigger projects don't get that benefit as they're further away. We like the fact that we can get in and deliver really efficient projects from an investment perspective, but give great amenity and outcome to the customers who ultimately buy them. 

(02:21): I mean, I just recall because I drove past it and just correct me if I'm wrong, but do you guys have a parcel land down at Quakers Hill, is that right?

(02:29): One of our first projects was in Quakers Hill on Burdekin Road.

(02:33): Yeah, it used to be an egg farm or something like that?

Steve Barlow:  

(02:36): Correct. We will usually buy the five acre parcels off a farmer of some sort, whether it be an egg farmer or a market gardener or something like that. They've owned that land for business purposes, it's happened to be rezoned, it's a good size and parcel for us to buy and we ended up transacting with that particular owner.

Tyrone Shum:  

Although Barlow’s role within the business is very diverse, as he is often dealing with many different parts of the business’s operations, he is primarily focussed on acquisitions at this current time.

Steve Barlow:  

(03:16): In any development business, you need to pipeline to be able to bring stock to the market and ultimately deliver the projects. So we're heavily focused on trying to find new projects to buy, that's probably taking up 70% of my time. I've got a team that works with me that are also heavily focused on acquisitions. 

(03:39): Outside of that, we're heavily customer focussed and we make sure that we deliver on time for our customers and do what we say we're going to do. We've obviously got a team that we're managing.

His day typically consists of a lot of vendor engagement, as this is the main focus in the acquisition process. This is because customers value the investment in infrastructure that is local to the area they are thinking of living in or buying into. 

(04:09): We try to buy sites that are well advanced from a planning perspective. So once we've narrowed down those areas, then it becomes about which parcels we like specifically. We like to look for parcels that have good road layouts, that are relatively flat and are serviced from a utility perspective. We then apply another set of filters if you like, to narrow down the specific sites we'd like to look at and then it becomes about engagement with those vendors. This involves preparing a feasibility in which to put an offer forward. 

(05:00): We then spend a fair amount of time with those vendors in getting them to a point where they understand our offer. [This is] because some of the concepts that we talk about are a little bit foreign.  We then agree on a price and term. We spend a lot of time in the pre feasibility phase, identifying where we'd like to buy. The next thing that we do is a detailed feasibility and detailed numbers to work out what we think we can pay and then it becomes about vendor engagement.

(05:25): Yeah, great. Well, I'm assuming some of the terms that vendors might not be familiar with would be like, joint venturing and options?

Steve Barlow:  

(05:33): Absolutely. It's pretty common when we look to buy under an option agreement purely to defer our stamp duty obligation, that not only vendors, but their legal advisors think that we're taking an option that we can walk away from, which is not the case. We're committed to the option and they have the ability to enforce that commitment, but they don't necessarily understand it. Sometimes it's just a lot about educating them on those concepts and on how we're protecting their interest in the transaction.

(06:07): I'm also just curious [about] the vendors. Are these usually vendors who don't know that they might be at an opportunity to sell or are they actually already advertising on the market?

(06:20): A bit of both. We like to try and find off market opportunities because, I suppose there are some costs during the transaction that you can actually avoid, [regarding] agents primarily. But typically, where we operate, everyone's aware of [the] range of value their parcel is. They talk to their neighbours who might have sold or someone down the road, so they're all pretty educated on what their land is worth. 

(06:45): They've been educated through the rezoning process, so the rezoning process [often] takes anywhere from 2–5 years and they've been informed during that process. Then a lot of them, particularly in high demand locations, will see a lot of agent and developer activity, for example, people trying to buy their land. They become educated through just talking to people interested in acquiring their land. 

Tyrone Shum:  

Growing up in the Blue Mountains on the outskirts of Sydney, Barlow stayed living in this area all throughout university. He would then make the move to London.

(07:22): [After London I realised that I had gotten] to the end of that period in my life and I decided that I best get a job. I was always very fortunate in that I knew I wanted to do property in some way, shape, or form. It wasn't until during university that I decided property development was where I wanted to head specifically.

He attended Western Sydney University at the Quaker’s Hill campus, where he studied property economics. 

(08:18): It [required] me to drive through parts of Western Sydney and that's where I'm developing now, which is quite interesting. 

(08:40): Okay, so you pretty much drove from the Blue Mountains out to university during those days as well? How long would that trip have taken actually?

(08:48): Half an hour.

(08:50): Oh, so it's not that far when you think about it. 

(08:52): No, I grew up at the very bottom end of the Blue Mountains. So you could almost say it was within a stone's throw of Penrith.

During the 18 months that he lived in London, it wasn’t all play and no work. Barlow dabbled in real estate.

Steve Barlow:   

(09:32): I did some leasing of flats, which was very interesting, getting to know London and driving around London was a great experience. But yeah, [it was a time] I certainly look back on fondly. 

(09:56): Definitely. Was that straight after uni? [So] you finished and then [moved] over to London [straight away]? 

(10:00): Basically yeah, within a couple of months I was on a plane. It was my first time overseas, which was daunting and exciting all at the same time. I didn't do as much European travel as I'd planned, but London's a pretty interesting and diverse place and you can get lost there for a long time. So that's basically what I did and in the job that I was doing, I was working weekends as well, so it probably narrowed down the time I had, but nonetheless [it was a] great experience. 

(10:27): So was that your intention when you went over to London, to actually work a bit? 

(10:31):  Yeah. 

Tyrone Shum:  

(10:31): Oh okay, so you actually got a job over there and then as soon as you came back, it worked out perfectly that you got [a job at] Mirvac. What were you doing at Mirvac?

(10:39): So I was in their development business, their greenfield subdivision business located out in Parramatta. I was fortunate that I sort of had two bosses, one of which just threw me in the deep end. That was a bit daunting because whilst you learn a lot at university, not all of it is practical. So he threw me in the deep end, which was great, it sort of made me learn very, very quickly. 

(11:05): Then I had another boss who had more of a coaching approach, so if I ever got stuck, I sort of had the best of both worlds. I was very fortunate that I landed that job with those two particular individuals and that gave me a really good grounding [of] what property development  was really about. 

(11:24): Wow. Is that common to actually have two bosses to report to in corporate?

Steve Barlow:  

(11:30): If you think about it in an org structure sense, one was a formal line and one was a dotted line, [the latter was] almost [a] self healing guy. He sort of imposed himself on me, which was fine. He was one of the best operators I've had the benefit of working with and I think his approach to sink or swim benefited me in the long run. So, although it was a really daunting experience at the time, I look back with fond memories.

After working at Mirvac for two years, Barlow’s formal reporting line superior got an offer to work at Stockland and took Barlow with him.

(11:33): I ended up going to the dark side, if you like, which was a completely different business. I went from Murdoch homes in Parramatta, [which] was part of a corporate organisation, but that particular division was run almost like a small business. [That] was great for me at the time. It was a good starting point [to moving into] the big head office of Stockland in the city. It was a completely different culture and mindset, so that took a bit of getting used to, almost 10 years.

Coming up after the break, we hear about Barlow’s role at Stockland and the projects that he was involved in.

(12:37): I had three or four projects up there of differing sizes and at different points in their lifecycle. 

We learn about his work surrounding subdivisions and how the skills gained in this sector of the business would aid him in the future.

(14:45): So I suppose I've been fortunate to see all aspects of property development from the very front end acquisition and statutory planning processes all the way through to the end product and customers moving into their homes.

Barlow shares how the industry has changed in the last 15 years...

(17:41): But that was my first experience where the product itself changed significantly and now 300 square metres is almost the most common product in Western Sydney. 

And that’s up next. I’m Tyrone Shum and you’re listening to Property Investory.

Starting as a development manager, Barlow managed their projects in the Hunter Valley before being promoted. He shares the type of developments he was involved in. 

(12:37): I had three or four projects [in the Hunter Valley which were] of differing sizes and at different points in their lifecycle. I worked my way up to a regional manager role where I basically looked after their business in New South Wales from a greenfield land subdivision perspective.

Tyrone Shum:  

Barlow deals with a lot of greenfield projects, which are free standing house land subdivisions on the outskirts of any city, but in his case, Western Sydney.

(13:18): It [means that] you can go and buy a piece of land and you can find a builder and build your house. It is like you would imagine suburbia to be, I suppose. So that's what we would term Greenfield as opposed to Brownfield, which was more centrally located within the CBD sort of ring and is typically in built form, whereby you buy an apartment or you buy a dwelling that's already constructed.

Barlow has been fortunate in his career, as he has been able to work his way up in the business. This was particularly the case at Stockland, where he started in subdivisions.

(14:19): As a developer, you put the roads and the services like sewer and water in, so I spent a lot of time understanding how the physical construction process worked. From there, I did everything from the planning side of things. This involved working out what your DA is going to look like, whether you comply with the planning controls and the like. [Then] to rezonings, which is basically taking a concept plan and turning it into a precinct that can be developed, then into acquisitions. 

(14:45): I've been [lucky] to see all aspects of property development from the very front end acquisition and statutory planning processes all the way through to the end product with customers moving into their homes. [I'm very thankful that I got] to see the whole process.

Tyrone Shum:  

(15:19): Wow. Now I can see why you stayed [at Stockland] for 10 years because you did quite a broad range of things all the way through the whole process, which obviously developed your skills.

(15:27): That's one thing about property, it's very tangible, in that the end result for the customer is that they're living in their dream home. [That] is pretty exciting to be a part of. But, it's also very diverse in the sense that we do things on site. So there's a tangible aspect to that or relevance to that, where you've got construction activity, you deal with feasibilities and numbers, you deal with planning and engagement with local councils and advocacy with local councils. 

(15:57): You sort of need to be, not a master at any one particular thing, but you need to have an understanding and grounding in each particular component. That's one of the things that is really attractive about property, in my opinion.

(16:10): Yeah that's what I love about property development, there's just so much of the process that you can actually be a part of. It's great to be able to see that from the planning stage all the way through to where your customer actually moves into the house because there's so many cogs in the wheel. At the end of the day, if you don't get the part at the beginning right, because that's obviously got to go through council and planning and so forth, then you can get stuck. That's why it's so important to make it right. Especially to develop land that's going to be sustainable, but also to fit the needs of customers. I'm pretty sure over that time you've seen the developments change, the block sizes have gotten smaller and smaller.

Steve Barlow:  

(16:44): Yeah, I mean when I first started, which was 15 or so years ago, 450–500 square metre lots was probably the norm. I remember a project that I looked after in Glenmore Park in Penrith and we had an idea that we could deliver 300 square metre lots, which at the time was just unheard of. Everyone was against it, particularly the sales team. They said 'We don't think we can sell this', 'Don't bother putting it on the market', they were very, very against the whole arrangement of 300 square metre lots. 

(17:21): Anyway, in the end we were able to get them because of their reduction in size to a price point that was very, very competitive and therefore more appealing to more customers. We put them on the market on this particular weekend, I think we put 10 on the market and they were all sold on the Saturday. In the following sales meeting on the Monday, the sales team was screaming for more. 

(17:41): But that was my first experience where the product itself changed significantly and now, 300 square metres is almost the most common product in Western Sydney. We're doing lots down to [around] 250 square metres, which is affordability driven in the main. So it's a good thing that we're able to deliver a price point where more people can get into homeownership.

(18:05): Yeah, I don't think people realise the land size at the end of the day until they actually see it and think about it. When you do think about it, 250 square metres is literally the house and just a tiny bit of backyard space. If it's affordable, who cares? As long as we can get our own home ownership, as you mentioned, [that’s what is] important to a lot of people.

Steve Barlow:  

(18:30): The builders have done a great job too in that small lot product. Some of the designs they're coming out with now are so livable and use the space so efficiently that the value for money you get is really, really high. So whilst they're affordable, the quality of living, if you like, is exceptional.

Barlow was content at Stockland, managing some great projects that had been in the works for a long time. He was then introduced to his current boss, Dean Williamson, owner of Clearstate, through a mutual friend.

(19:24): He was keen for me to come and work for him and after four months of saying no to him a few times, going back and forth and saying no to him a few more times… [I realised that] he's a pretty convincing guy. 

(19:56): In the end, I decided that coming across to work in a smaller private business would be good for my personal development. I probably always had it in the back of my mind that it was something I’d like to do one day. It probably [also] came into my world sooner than I had anticipated, but nonetheless, the opportunity presented itself and that was it. We agreed that I'd come and work for him and I've been here for almost four years. 

Clearstate aims to buy projects where they can deliver an affordable product. With this as their goal, their target market is predominantly first and second home buyers, who are typically budget conscious.

Steve Barlow:  

(20:50): So we'll typically try and buy, like I said, projects that are well located in terms of proximity to amenity because that's what customers value, which obviously makes our product easier to sell. The buyers that we are usually selling to are wanting value for money and the projects we can buy can offer both of those things. 

Tyrone Shum: 

Working in the property development space for over a decade, it’s not unusual that Barlow would start his own property journey. This kickstarted when he purchased his first property off of Stockland.

Steve Barlow:  

(21:47): I was working on a project in the Hunter Valley, in Maitland and I saw that we were delivering a product where I suppose mum and dad investors were coming along after us and subdividing our lots into smaller lots. So I thought, well I've got the skills to do that, so I did. I ended up cutting a 600 square metre lot into two, 300 square metre lots.

(22:16): I built one house which I rented out, but I didn't build the second house because financially, I didn't quite have the capacity to do so at that point in time. I ended up selling both of those, but it was a good experience in that, it was the first time I put my own money into a property project and it was interesting how that changes your mindset slightly. 

(22:40): All of a sudden it's your money and that bill you've got to pay, you might actually ask the consultant to go a little bit cheaper and you might push a little bit harder for certain things to happen quicker. So that was an interesting insight for me in understanding how I would treat my own money versus how I thought I was treating the businesses money that I worked for [essentially].

(22:59): Yeah, that's fascinating. I know, once you start putting your own money on the line, you start to think, ‘Hmm, how can I actually make better improvements?' 'Is there probably a little bit more margin it can make?' 'How can we actually ensure that delivers on time?' It's a really different mindset because I guess the business has a bit of a buffer, so we kind of work that out the best we can to help them out too.

(23:20): Yes, it was a bit confronting because I always prided myself on, or at least at the time I thought I prided myself on the fact that I treat the business's money as my own. But it was a good and pretty early lesson [to learn] that I could actually go a little bit harder from a business sense. It sounds a little bit wrong to be saying that, but that's the lesson I took out of it.

(23:39): It's fascinating to hear that, it's great and thanks so much for sharing that. I also wanted to understand as well, when you said that those lots were 600 square metres and you saw that mums and dads were subdividing them, is that still quite common to see that happen? Why would people buy the 600 square metre block initially, not to build on it themselves but to subdivide it?

(24:04): The nuance of the planning controls in that example was that you had to build the houses to subdivide. So because at stockland, at the time, they weren't building any houses, the minimum lot size restricted us from going down to that 300 square metres. That still happens, so there's still dual occupancies that get developed in the greenfield projects that we're working on. [Due to the fact that] Clearstate [doesn’t currently] build, a mum and dad could come along and buy the bigger lot, propose through the council process to build two dwellings and therefore subdivide that lot further. It becomes about how any particular investor can manipulate the planning controls to their advantage. 

(24:50): Yeah. So is there any reason why Cleanstate has not decided to go down the construction path as well, instead just selling blocks of land off?

(25:00): Yeah, if you look at our 10 year plan, it's certainly something we've got on there as an idea and something we'd like to be doing. At this point, we just want to be really good at what we know and build up the business to a point where we've got the financial means and we've got the ability to go and try something different. So it's more about being really methodical in the way we implement our strategy and getting really good at what we do. Also [growing] to a certain size that allows us to go and branch off into other things. 

(25:33): But I have a personal opinion that pure land subdividers in 10–20 years will probably be pretty rare. The ability to sell a house and land is a much better customer experience than trying to do all of the pieces of the puzzle separately. So if you're a customer at the moment, you buy a piece of land off me and you sign a contract with me, you then go and find a builder, you sign a contract with them, you then go and find a financier and you sign a contract with them. 

(26:06): If that was all more streamlined through one entity, that's a far better experience and I think as a consequence of that, more people will be attracted to building a new home as opposed to buying an established house.

(26:18): Yeah and that makes absolute sense because with anything, it doesn't even have to be property, it could just be buying an electronic device – if you're going to buy something that comes with all of its accessories, you buy it all in one go. You don't want to be going to multiple different vendors to buy something. [It] just takes too much time [and] it's about convenience. 

(26:36): That's happening in Melbourne a little bit already. I think the Melbourne market's a bit more mature in that sense, than Sydney is. There are a few more builder developers, as I call them. So yeah, I think that's ultimately where we'll end up. So the building journey for us is going to be a long and slow one, but it's certainly on the radar.

Anyone who is in the development space for a period of time will have one or two war stories to tell and Barlow is no different. He recalls the unfortunate events that occurred following the purchase of a 50 lot subdivision at Clearstate. 

(27:30): We got a little bit swept up in the market hysteria that was happening a few years ago and bought at the top of the market. We were probably guilty of not reading the tea leaves on what was actually happening in the market and almost forecasting that growth was going to continue...It didn't.

 

(28:02): What felt like a week after we finalised that transaction, prices started to go down, demand started to fall and in a 50 lot subdivision, once you lose the ability to sell at your feasibility price, your returns start to come under pressure. So basically, we bought at the top of the market, we were selling on the way down, returns don't look as good as they were when we bought the project. 

(28:27): There's a few unexpected things that came during the council approval process as well, that didn't help returns. We ended up making okay money out of it, but it was certainly nowhere near our expectations. We had to do a lot of things on that project unconventionally, to try and recover as much of that loss as we could.

(28:52): How long did that particular process take to sell off all of that land to be able to recoup your first initial investment, but also to get through this challenging phase that you went through?

(29:04): About two years longer than we originally anticipated. To try and buy time for market recovery we were renegotiating terms with the vendor and we were looking at whether we could get more yield out of the project. We were [also] looking at trying to, I suppose be a little bit creative in how we delivered the subdivision works with a civil partner. 

(29:26): So [we were coming up with] almost any idea that we thought could save the project we were trying to implement. It was good because it taught us a lot about how we could be more efficient on some of our better performing projects. But that particular investment was one we probably don't look back fondly on, from a return perspective. But, out of every war story, there's a lesson and we certainly learned some there.

Tyrone Shum:  

(29:47): Definitely. Was the 50 lot subdivision a common project that you guys take on? Or was that a smaller development in comparison to sizes that you usually take on?

(29:57): We do anywhere from 20–200 lots, that's sort of our sweet spot. That will vary in terms of the ultimate size of the parcel we buy originally, depending on where you are and where you're developing and what the associated lot sizes are. But 50 is pretty typical for us.

When thinking back to his time at uni, Barlow remembers how it all just clicked for him in his property development class. This would further ignite his passion for property and give him clarity from a career standpoint.

(30:29): You could do many things in property as you know, leasing, sales, real estate, all [of] the above. That class was the first time I learned about feasibility and what makes up a feasibility and how you determine the value of a development site. It was really intriguing to me, so that was probably my first aha moment where I said, 'Okay, well now I want to do property and I want to do property development'. 

(31:26): From an ‘investing in property’ perspective, when you're doing your own personal investing, the benefits of relationships is probably a broad lesson that I've learned, whereby if you can use your network to your advantage, it can help the return that you'll ultimately get out of a project. I suppose that's probably a mindset that I try and take into any investment, whether it be personal or professional and that's paying dividends for me.

So inspired by Steve Barlow’s journey, we will keep the conversation going in a future episode of Property Investory. We will discuss the current projects that Barlow is pursuing, both professionally and personally.

We committed to a 50 lot subdivision which was acquired from three separate owners, three owners that own contiguous parcels.

We’ll hear about how there is currently a lot of government incentive for customers to buy and build a house. 

There are stamp duty exemptions, there are grants that buyers can get access to, so that is an advantage to buying a new product.

What motivates him in his property development career and in his own portfolio.

I analyse markets, I deal with people, I negotiate with councils, it’s so diverse that every day I come into the office or start work, it’s going to be different to yesterday.

And that’s next time in a future episode of Property Investory.